China boosts its presence in Europe

Two technicians examining a production line at Shandong Kaitai Group, an engineering equipment producer based in Shandong province. Kaitai has so far set up overseas branches in Europe, Asia and the Middle East. Last year it successfully acquired Airblast B.V. of the Netherlands. [China Daily]

When the global financial crisis broke out in 2008, little did economic experts think it would be the precursor to a healthy economic relationship between China and Europe. But in the subsequent years the alliance, aided by a series of mergers and acquisitions in Europe, has managed to give Chinese outbound investment a new direction.

More importantly, the Chinese investment footprint covers the entire continent, ranging from the cantons of Switzerland, to the industrial heartlands of Germany, the vineyards of France, a port in Greece, and textile companies in Italy. It also includes utility investments in the UK and services sector investments in many European nations.

Zhejiang Xuebao Fashion Co, a leading fur coat maker, is one of the Chinese companies eyeing Europe for further growth. The company plans to invest 50 million yuan ($8 million) to acquire a local fur coat factory in Turin and establish a representative office in Italy by the end of May.

"Italy is the fur capital of the world. There is a lot of know-how we can gain from the Italian factory. It will also help in making our products appeal more to European customers," said Zhu Weixiang, general manager of the company. "The debt crisis in Italy has given us an ideal investment opportunity."

In July last year, China's leading down coat producer, Bosideng International Holdings Ltd, opened its first overseas store in London's West End. The $55 million store is the first main link in Bosideng's overseas expansion.

The company, named Chinese Investor of the Year in 2012 by the British Business Award council, expects overseas business to account for more than 5 percent of its total revenue in the next five years.

Chinese investment in Europe has not only grown rapidly, but also outpaced its investments in the United States. And, not surprisingly, most of these investments have managed to create jobs amid a dismal economic climate in Europe.

A recent study conducted by the European Chamber of Commerce in China, KPMG and Roland Berger Strategy Consultants indicates that Chinese companies operating in the EU will not only increase their investments in Europe but also look to acquire more technology, brands and expertise through mergers and acquisitions to further improve their competitiveness.

"We were surprised to find that most of the respondents wanted to continue to invest in Europe. This gives us the feeling that Chinese companies that have an ongoing investment in Europe are happy with these projects and want to continue to stay invested in Europe," said Davide Cucino, president of the European Chamber of Commerce in China.

Of the 74 surveyed Chinese enterprises that have invested in the EU, 97 percent indicated that they would make future and additional investments in the EU, with the vast majority of them planning higher outlays, the study said.

Lending further credence to the survey findings were figures published by the National Development and Reform Commission in December, indicating that 11 of the newly approved outbound investment projects were in Europe.

Zoje Europe GmbH, the fully owned unit of Zoje Sewing Machine Co, a sewing machine company in East China's Zhejiang province, has recently completed two major acquisitions in Germany and is considering another.

The company plans to buy the German industrial sewing machine maker Pfaff Industrial to hone its technological strengths, said Chen Yongwu, general manager of Zoje Europe GmbH. If the purchase is successful, Zoje will hold more than 15 percent of the global sewing machine market, and become the world's second largest sewing machine company.

"We expect the Chinese investment wave in Germany to continue for the next five to 10 years," Chen said.

According to Germany Trade and Invest, the official investment promotion agency of Germany, investments from China accounted for 18 percent of the total investments last year. It is estimated that Chinese companies invested $1.47 billion in Germany last year, almost equal to Germany's investments in China.

"Germany is located in the center of Europe. Chinese companies can enter the European market easily by using the 'Made in Germany' tag. We expect to attract more Chinese investment this year," said Benno Bunse, chairman of Germany Trade and Invest.

Investment rationale

However, Cucino of the EU chamber said revenue is not the only factor that is propelling Chinese companies to Europe.

"The foremost reason why Chinese companies want to invest in the EU is of course the European entry point for their products. However, they are not in Europe just for the European market, but also to bring back products to China and even export products to other countries."

In the EU chamber study, 85 percent of the respondents said their main reason for investing in the EU was to gain market access for their products in Europe and to provide goods and services within the EU market.

But "in Europe, for Europe" is not the only purpose, experts say.

Coco Ke Liu, head of business channel development at HLB International, a global network of independent professional accounting firms, said that while some Chinese businesses are investing in Europe to serve the European market, some are also investing here to acquire technologies and brands, which are important resources for success both in the Chinese market and abroad.

In recent years, a growing number of Chinese acquisitions in Europe have been across a diverse range of industries, including food, retail, manufacturing, education, clean technology, industrial technology and healthcare.

Shanghai-based Bright Food Group's purchase of a 60-percent stake in British cereal maker Weetabix Ltd in May last year helped the company gain a well-known and well-trusted British brand.

Chinese construction equipment maker Sany Heavy Industry Co and Chinese private equity company CITIC Group's joint acquisition of Germany's largest concrete pump maker Putzmeister in January last year in a landmark deal allowed China to claim a pillar of the German industry.

Bunse of Germany Trade and Invest said that for Chinese companies which are faced with industrial upgrading issues, investing in European countries such as Germany can help overcome the problems.

"It is still a difficult process for Chinese companies to set up globally recognizable brands. They need the support of both advanced management and technology, which we believe European countries such as Germany can provide."

Many Chinese companies are expanding into Europe to build globally recognizable brands because the European market has strict regulations especially for high-technology products.

Chinese medical equipment maker Mindray Medical International is one such company testing the waters.

"We are committed to international expansion, especially in the US and Europe. These two markets are like two fortresses we have to conquer to become a truly global leader," said David Yin, managing director of Mindray's European operations.

"In the process of selling our products to Europe and the US, we learn about their strict standards. These lessons have become invaluable for product development at home."

Yin said Mindray's success in Europe and the US has helped it gain trust from domestic and customers in other emerging economies which had often favored Western products in the past.

"Some Middle Eastern and Latin American markets only give medical equipment product registrations if they had already been sold in Europe or the US, which just demonstrates how important it is to have a presence in Europe and the US," Yin said.